PayPal's location-based shopping gadget, called Beacon, is being tested by a restaurant in Silicon Valley, and coffee shops in New York City and Sydney, Australia

SAN FRANCISCO -- EBay has spent many hours and lots of money pinpointing the locations of thousands of retail stores so the e-commerce company can capture sales from smartphone wielding shoppers.

Now the company's PayPal division is using a new technology know as Bluetooth Low Energy to get even more accurate location information inside stores through a gadget called Beacon.

The first PayPal employee tests of Beacon are happening at Spice Hut, a restaurant and food truck business in Silicon Valley, Telegraphe Cafe in New York and Get York Coffee in Sydney, Australia.

Accurate location information is becoming more important as the rise of smartphones boosts mobile commerce brings the benefits of online shopping to physical stores.

When a consumer visits a retail website, the company knows who they are and what they bought the last time they were there. That's valuable information that most physical stores don't have.

But what if a store could wake up a shopper's smartphone when they walk through the door and personalize the experience with data from their previous visits? Even better, what if those shoppers complete their purchases using their phones and that data is collected and analyzed by retailers?

That's the retail holy grail that eBay and other technology and retail companies are fighting for. Apple released iBeacon location-based technology earlier this year, start-up Shopkick has installed location-based systems in major stores already and a group of the largest retailers, led by Wal-Mart, launched a mobile payments group last year called MCX.

"Understanding a person's context and location in the world is very important to deliver better shopping experiences to consumers," said Rob Veres, general manager for RedLaser, an eBay mobile shopping and price-checking app that has been downloaded more than 27 million times. "It helps unlock new capabilities that are different from a generic online shopping experience."

One of eBay's latest pilot programs links mobile shoppers with apps used by store associates to craft a more personalized visit. EBay is training some retail employees how to use this technology, Veres added, while declining to identified the companies involved.

But before launching such pilots, eBay had to accurately locate as many stores as possible. It then used geo-fencing technology to set a virtual radius around each store to spot when shoppers and their smartphones enter.

Getting the locations right was particularly tricky because the existing latitude and longitude information for many stores was not accurate. A Best Buy store would be three parking lots over from its virtual, geo-fenced location, according to Veres.

EBay started about two years ago and initial fixed this by manually comparing the latitude and longitude data with satellite images and making sure they matched. The company did this with about 1,000 Best Buy stores and that took two to three months, Veres recalls.

"A pretty senior level engineer was doing the first batch of those manual corrections for a while," the executive said.

EBay then developed a more automated process that could be out-sourced to third-party companies.

"We paid small amounts per data point to get the data corrected," Veres explained. "We would send the same tasks to multiple outside people to make sure they are getting the same results."

EBay now has more than 120,000 store locations from about 100 merchants in the U.S., including Best Buy, Target, Walgreen, Home Depot and Lowes.

Armed with this data, eBay can offer more useful location-based information to consumers. In the past, the Red Laser app would let shoppers compare the price of an item in a store with what was available elsewhere. Now, it can show more information about the store itself, which pleases eBay's retail partners.

In Best Buy stores, when the Red Laser app shows competing prices for a product, Best Buy now pays eBay to show ads in the list.

"They have gotten very aggressive on price matching," Veres said. "They have sponsored price ads that highlight their price-match guarantee, even though their listed price may be higher."

However, Red Laser's geo-fencing technology is not so good once mobile shoppers get inside the store and start moving around and paying. This is where PayPal's Beacon comes in.

PayPal's Beacon gadget is designed for in-store mobile commerce(Photo: PayPal)

Beacon is a three-inch high stick that plugs into a wall socket and lets stores automatically identify and authenticate PayPal users as they walk in. The gadget connects to stores' point-of-sale systems and shoppers' smartphones using BLE technology, letting consumers pay without launching an app or remembering to check in — actions that are currently needed to pay with the PayPal smartphone app.

"BLE has bunch of advantages over traditional geo-fencing," said Hasty Granbery, lead engineer for PayPal Beacon.

A major one is that it locates smartphones much more accurately in stores.

"So if you're standing in the the TV department for 30 minutes, a retailer can send you an offer for 10% off if you buy in the next 20 minutes," Granberry explained.

BLE is particularly well suited for this because it allows two-way communication between smartphones and PayPal.

So when shoppers walk into a store, PayPal can ask whether they want to use their PayPal app and they can reply yes or no. PayPal can also check whether consumers want to see offers and discounts that are available in different parts of the store.

Restaurant Spice Hut started testing Beacon recently with its food trucks when they come to PayPal's campus in Silicon Valley at lunch time.

Before Beacon, Spice Hut would serve 60 to 65 people at PayPal's campus and 10% to 12% of them would check in as customers using the PayPal mobile app, owner Joseph Manoharan said.

The addition of Beacon should increase the number of check-ins because that activity is triggered automatically, he added. That should speed up the lines.

"People come in large numbers over a two to three hour window, so this should help get customers in and out quicker," Manoharan explained.

Telegraphe Cafe in New York will start testing Beacon soon. Anne Abikhzir, one of the owners of the coffee shop, expects the new gadget will increase check-ins and make the experience of buying coffee and pastries more personal for her customers.